Skip to content
Welcome, thoughtbot's Giant Robots listeners!Start here
Is Britain Actually Broke?
22OCT

Healey rules out three big tax rises

3 min read
16:23UTC

John Healey ruled out rises in VAT, income tax and corporation tax on 7 September, then told Labour's conference he would meet the fiscal rules.

← Back to Debt passes £3trn, its ratio below forecastJump to analysis ↓
EconomicDeveloping
Key takeaway

Healey has ruled out the three biggest taxes, leaving thresholds, spending and welfare as Budget levers.

Chancellor John Healey ruled out rises in VAT, income tax and corporation tax in a speech on 7 September⁠1. At Labour's conference in Liverpool on 28 September he said "we will meet the fiscal rules", called cutting welfare spending "a moral duty" and said "the money New Labour had in the nineties is simply not there now"⁠2. He announced £6bn for three floating docks on the Clyde. Healey, appointed by Prime Minister Andy Burnham on 20 July, presents his first Budget alongside the OBR forecast on 28 October.

The broker Saxo estimated that the roughly £24bn of headroom his predecessor left, the margin by which the government expected to meet its borrowing rules, has at least halved⁠3. The Resolution Foundation, a centre-left think tank, said on 8 September that about £1 in every £12 of public spending now goes on debt interest⁠4. In July it had put the government's headroom against its fiscal rules at about £10bn. The Institute for Government said on 7 September that the OBR forecast had likely deteriorated since March⁠5.

The three taxes that raise most are off the table, borrowing is £8.1bn over plan after five months, and the £10bn headroom estimate predates the late-September rise in gilt yields. On Lowdown's reading, that leaves tax thresholds, smaller taxes, spending or welfare as the levers for the Budget.

Deep Analysis

In plain English

The Chancellor is the government's finance minister. John Healey must publish a Budget on 28 October. The Budget sets taxes and spending. The government has set itself fiscal rules, limits on borrowing and debt. Economists call the gap between its plans and those limits headroom. Think tanks and brokers estimate that gap has shrunk. Healey has said he will not raise VAT, income tax or corporation tax, the three taxes that bring in most money. That leaves other choices: freezing tax thresholds, raising smaller taxes, cutting spending or cutting welfare.

Deep Analysis
Root Causes

The fiscal rules constrain the Chancellor, and headroom is the margin between the forecast and the rule. A small change in the OBR's yield and growth assumptions moves it by billions, so a pledge about taxes made before the forecast leaves little room for error.

Debt interest compounds the squeeze. With £1 in every £12 of spending going on interest, a larger share of each pound is committed before any choices on schools or health.

Three taxes, VAT, income tax and corporation tax, raise most of the revenue. Ruling them out narrows the remaining options to thresholds, smaller taxes and spending, because the other levers raise less per point of rate.

What could happen next?
  • Consequence

    With three taxes ruled out, the 28 October Budget leaves thresholds, smaller taxes, spending and welfare as the levers on Lowdown's reading.

  • Risk

    The £10bn headroom estimate predates the late-September rise in yields, so the OBR's number may print lower.

Sources:XTB·Sharecast·Resolution Foundation
Mentions:John Healey →HM Treasury →Resolution Foundation →Institute for Government →Labour Party →Office for Budget Responsibility →Andy Burnham →Saxo Bank →Gordon Brown →Liverpool →Autumn Budget 2026 →Denis Healey →VAT →
First Reported In

Update #4 · £8.1bn over forecast, and the 30-year at 6%

XTB· 7 Oct 2026
Read original →
Causes and effects
Caused by
ONS puts borrowing £8.1bn over OBR path
The £8.1bn overshoot is the arithmetic Healey's tax pledges must meet before the Budget.
Occurred 22 Sept 2026
Read story →
This Event
Healey rules out three big tax rises
With the three largest taxes ruled out, Lowdown reads the Budget's remaining levers as thresholds, smaller taxes, spending and welfare.
Led to
IFS puts Budget headroom near £20bn
With VAT, income tax and corporation tax ruled out, the IFS costed the gap at £35bn of other tax rises or benefit cuts.
Occurred 12 Oct 2026
Read story →
Different Perspectives
Pension Protection Fund
Pension Protection Fund
Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.
Torsten Bell
Torsten Bell
The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.
Tax Justice UK
Tax Justice UK
The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.
Institute of Economic Affairs
Institute of Economic Affairs
The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.
Resolution Foundation
Resolution Foundation
The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.
Institute for Fiscal Studies
Institute for Fiscal Studies
Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.